When Going Organic Might Be Thriftier: Funding Retirement Cashflow

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In 2018, the Food Marketing Institute reported that the average price for organic produce was 54% higher than for non-organic goods. Meanwhile, traditional, non-organic forms of generating retirement income based on the capital markets are expensive. Yet their cost remains the status quo. Among advisors, 87% continue to use a withdrawal strategy according to the recently released Protected Retirement Income and Planning study conducted by Cannex and The Alliance for Lifetime Income.

From paltry dividend yields to low bond yields, to 3% or less being the new 4% “safe” withdrawal, producing income takes lots of money using traditional approaches.

For example, $50,000 hardly qualifies as high income, but one needs a high-net worth to produce that amount with traditional methods. Using AAA-rated corporate bonds yielding about 2.4%, the cost of that $50,000 income is almost $2.1 million. The dividend yield on the S&P 500 is barely 1.3%, meaning $50,000 costs almost $4 million. The alternative is higher dividends but with single-stock risks. A 4% “safe” withdrawal requires $1.25 million, and 3% (is 3% the new 4%?) almost $1.7 million.

None of those are guaranteed.

Meanwhile, a deferred annuity with a lifetime withdrawal benefit – purchased in one’s 60s – can generate that same $50,000 for much less. Some products offer an immediate cashflow around 5% of the purchase amount. And, with a deferral period, those withdrawal rates only go up, pushing the “cost” of that $50,000 income down.